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WASHINGTON (Reuters) -The World Bank on Thursday warned that U.S. across-the-board tariffs of 10% could reduce already lackluster global economic growth of 2.7% in 2025 by 0.3 percentage point if America’s trading partners retaliate with tariffs of their own.U.S. President-elect Donald Trump, who takes office Monday, has proposed a 10% tariff on global imports, a 25% punitive duty on imports from Canada and Mexico until they clamp down on drugs and migrants crossing borders into the U.S., and a 60% tariff on Chinese goods. Some countries including Canada have already vowed to retaliate.The World Bank said simulations using a global macroeconomic model showed a 10-percentage point increase in U.S. tariffs on all trading partners in 2025 would reduce global growth by 0.2 percentage point for the year, and proportional retaliation by other countries could worsen the hit to growth.It said those estimates were consistent with outside studies which showed a 10-point increase in U.S. tariffs could “reduce the level of U.S. GDP by 0.4%, while retaliation from trading partners would increase the total negative impact to 0.9%.”But it noted that U.S. growth could also increase by 0.4 percentage point in 2026 if U.S. tax cuts were extended, it said, with only small global spillovers.The Bank for International Settlements on Thursday also chimed in, warning of increased “frictions and fragmentation” in global trade and calling a broad-based trade war between Washington and other countries “a tangible risk scenario.”The World Bank’s latest Global Economic Prospect report, issued twice yearly, forecast flat global economic growth of 2.7% in 2025 and 2026, the same as in 2024, and warned that developing economies now faced their weakest long-term growth outlook since 2000.The multilateral development bank said foreign direct investment into developing economies was now about half the level seen in the early 2000s and global trade restrictions were five times higher than the 2010-2019 average.It said growth in developing countries is expected to reach 4% in 2025 and 2026, well below pre-pandemic estimates due to high debt burdens, weak investment and sluggish productivity growth, along with rising costs of climate change.Overall output in emerging markets and development economies was expected to remain more than 5% below its pre-pandemic trend by 2026, due to the pandemic and subsequent shocks, it said.”The next 25 years will be a tougher slog for developing economies than the last 25,” World Bank chief economist Indermit Gil said in a statement, urging countries to adopt domestic reforms to encourage investment and deepen trade relations.Economic growth in developing countries dropped from nearly 6% in the 2000s to 5.1% in the 2010s and was averaging about 3.5% in the 2020s, the bank said. It said the gap between rich and poor countries was also widening, with average per capita growth rates in developing countries, excluding China and India, averaging half a percentage point below those in wealth economies since 2014.The somber outlook echoed comments made last week by the managing director of the International Monetary Fund, Kristalina Georgieva, ahead of the global lender’s own new forecast, to be released on Friday.”Over the next two years, developing economies could face serious headwinds,” the World Bank report said. “High global policy uncertainty could undercut investor confidence and constrain financing flows. Rising trade tensions could reduce global growth. Persistent inflation could delay expected cuts in interest rates.”The World Bank said it saw more downside risks for the global economy, citing a surge in trade-distorting measures implemented mainly by advanced economies and uncertainty about future policies that was dampening investment and growth. Global trade in goods and services, which expanded by 2.7% in 2024, is expected to reach an average of about 3.1% in 2025-2026, but to remain below pre-pandemic averages. More

In a note to clients on Thursday, the analysts estimated that the US economy grew at an annualized rate of 2.7% in the fourth quarter, slowing from a 3.1% in the third quarter. If accurate, then this would mean that real gross domestic product expanded 2.8% on an annual average basis in 2024, they added.They argued that, considering real output increased at an average rate of 2.4% per year during a period of economic expansion from 2010-2019, “the American economy appears to be in solid shape at present.”Meanwhile, most businesses are looking strong, they suggested, pointing to data indicating that even though the pace of hiring has eased in recent months, most firms neither need workers nor “want to cut staff.”Progress has also been made on returning inflation to the Federal Reserve’s 2% target level, the analysts added.So-called “core” consumer price growth, which strips out volatile items like food and fuel, edged up by 0.2% month-on-month and 3.2% year-over-year in December, data from the Labor Department’s Bureau of Labor Statistics showed on Wednesday. Economists had estimated the numbers would match November’s pace of 0.3% and 3.3%, respectively.However, the deceleration in inflation may be halted if the incoming Trump administration follows through on a threat to impose sweeping new import tariffs on both allies and adversaries alike, the analysts said.They added that “higher prices resulting from [the] tariffs” would subsequently weigh on real income growth, denting consumer spending activity.”Higher tariffs, if imposed, would impart a modest stagflationary shock to the economy,” the analysts argued, predicting that the levies could lead to a downshift in economic growth in the second half of 2025.But they still see activity accelerating in 2026 thanks to the impact of a possibly more business-friendly environment, including looser regulations and tax cuts, during Trump’s second term in the White House. More

The minutes highlighted an increasing easing bias, with the ECB concentrating on the pace of future rate cuts rather than their general necessity. The central bank also moved away from its strict 2.0% inflation target, now aiming for inflation to “stabilize sustainably at the target,” reflecting a shift in its communication strategy.Concerns were raised regarding the optimism of growth forecasts in the staff projections. The baseline scenario, which anticipated unchanged trade policies and stronger foreign demand bolstering euro area exports, was considered potentially too positive given the unpredictable trade policies of key trading partners, particularly the United States.The term “undershooting” was noted three times in the minutes, pointing to an increased likelihood of inflation falling short of the target if the economy fails to gain momentum. The debate over the size of the rate cut was intense, with some members advocating for a 50 basis point reduction to provide insurance against the downside risks to growth that are exacerbated by global and domestic political uncertainties.In summary, the ECB’s minutes from December underscore the central bank’s readiness to cut rates more swiftly to counter the risks of inflation undershooting and to address doubts about the growth outlook amid various uncertainties.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

WASHINGTON (Reuters) – Just days before Donald Trump returns to power, some of his Republican allies in the U.S. Congress are warning that the president-elect’s aggressive tax-cut agenda could fall victim to signs of worry in the bond market. At a closed-door meeting on Capitol Hill, Republicans in the House of Representatives aired concerns that the estimated $4 trillion cost over the next 10 years of extending the 2017 Trump tax cuts could undermine the U.S. government’s ability to service its $36 trillion in debt, which is growing at a pace of $2 trillion a year. “The buyers of our bonds are getting nervous that we’re at the point that we cannot pay it back. That affects every one of us,” Republican Representative Ralph Norman told reporters. “If we can’t sell bonds, guess what? We’re in a ditch.”The U.S. bond market has become ultra-focused on what the incoming Trump administration and its allies in Congress may deliver as they strive to enact a wide-ranging Trump agenda that also includes the deportation of immigrants living in the country illegally and new tariffs on imports. Congress also faces a mid-year deadline to address the nation’s debt ceiling or risk a default, after rejecting a Trump attempt last month to get lawmakers to do so before he takes office on Monday. Longer-dated U.S. Treasury yields jumped to their highest levels since November 2023 this week, with the 10-year bond hitting a high of 4.79%. It traded lower to 4.66% on Wednesday afternoon.”Congress has to reduce the deficit,” Republican Representative Andy Barr said. “The bond market is telling Congress that if we don’t get our fiscal house in order, everybody’s mortgage rates, everybody’s credit card rates, everybody’s auto loan rates, are going to continue to go up.” Democrats warn that extending the Trump tax cuts will mainly benefit corporations and the wealthy, while further undermining the nation’s fiscal position.Democratic Senator Chris Murphy described Trump’s repeated comments about his desire to take over Greenland, Canada and the Panama Canal as a distraction from the implications of the tax cuts.”They’re going to try to distract the press and the public and the information ecosystem away from the thievery that is going to happen with this massive tax cut,” Murphy said. Trump has tapped Tesla (NASDAQ:TSLA) Chief Executive Elon Musk, the world’s richest person, to find ways to sharply cut federal spending. Musk set an initial goal of $2 trillion per year that he this month called a “long shot,” saying that $1 trillion may be more achievable.Even that lower figure represents almost one-sixth of all federal spending, a goal that will be very difficult to meet given that Trump has ruled out cutting the popular Social Security and Medicare retirement programs, that Republicans typically resist cuts to defense spending, and that interest payments alone cost the nation $1 trillion per year.In recent days, House Republicans have begun circulating a list of potential spending cuts totaling as much as $5.7 trillion over a decade – nearly 10% of current spending levels – that includes spending on Medicaid and the Affordable Care Act.Republicans in the House and Senate expect to use a parliamentary tool known as reconciliation to move legislation containing the Trump agenda through Congress while circumventing Democratic opposition and the Senate’s 60-vote filibuster for most bills. Barr said such a reconciliation package would need to contain a combination of economic stimulus and spending cuts credible enough to persuade investors that Congress is addressing the U.S. fiscal woes. “Will this reconciliation bill actually reduce the deficit? If they think that it will, that has the very real potential of lowering Treasury yields,” Barr said. “What we need to say to the American people is, look, this is not austerity. This is not painful cuts. This is about lowering your mortgage payment.” More

The earnings rounded out a robust quarter for Wall Street banks, which benefited from a surge in mergers and acquisitions due to a strong U.S. economy, interest-rate cuts and expectations of lighter regulation under incoming President Donald Trump. It also wraps up a strong first year for CEO Ted Pick, who had won a three-man contest for the top job. Pick said 2024 was “one of the strongest years in the firm’s history” as Morgan Stanley (NYSE:MS) garnered record net revenue of $61.8 billion. “We are executing against four pillars – strategy, culture, financial strength and growth – that support our integrated firm, creating long-term value for our shareholders,” he said, citing growth in investment banking and wealth management. Busier activity across geographies, notably in Asia and the Americas, lifted its equity trading revenue by 22% to a record. Morgan Stanley’s quarterly investment banking revenue rose 25% to $1.64 billion, echoing results at rivals Goldman Sachs and JPMorgan Chase (NYSE:JPM) on Wednesday.Profit grew to $3.7 billion, or $2.22 per share, for the three months ended Dec. 31, compared with $1.5 billion, or 85 cents per share, a year ago. Analysts, on average, had expected $1.7 per share, according to estimates compiled by LSEG.The bank also benefited from easier comparisons with last year, when it took certain one-time charges to refill a government deposit insurance fund and to settle a government probe. Shares of the investment bank were up 1% before the bell. Last year, they were among the top performers in the large-cap banking category, gaining nearly 50%.Globally, investment banking revenue jumped 26% to $86.80 billion in 2024, according to data from Dealogic. Wall Street CEOs and dealmakers expect more large deals to be approved under the Trump administration than his predecessor Joe Biden.Investment banks have also cashed in on rallying equities, which encouraged initial public offerings and follow-on stock sales, while lower borrowing costs led companies to issue bonds.WEALTH MANAGEMENTMorgan Stanley’s revenue from wealth management rose 13% to $7.5 billion, helped by record revenue in asset management.The unit provides the bank with stable income, offsetting the volatility from investment banking and trading.The bank has set a target of managing $10 trillion in client assets. Total (EPA:TTEF) client assets in the quarter were $7.9 trillion.Overall revenue rose 26% to $16.2 billion in the fourth quarter, also beating expectations of $15 billion, according to LSEG data. More

Frederiksen summoned business leaders after speaking on Wednesday with U.S. President-elect Donald Trump, who last week refused to rule out military or economic action to take control of Greenland, which is strategically important to Washington.The Danish leader told a press conference Trump had not retracted his threats of economic coercion during the phone conversation.”We don’t want to have any kind of conflict with the Americans in the trade area, but of course we are working with the companies, with the business organizations and with our European colleagues,” she said.Trump has said it was an “absolute necessity” for the United States to take control of the vast Arctic island, a semi-autonomous territory of Denmark, and suggested he would impose tariffs on Denmark if it resists his offer to buy it.Frederiksen told Trump in their 45-minute phone conversation on Wednesday that it was up to Greenland to decide its future and that Denmark is willing to do more to strengthen security in the Arctic. She also emphasized that Danish companies contribute to growth and jobs in the United States and that the EU and the U.S. have a common interest in increased trade.The CEO of Danish obesity and diabetes drugmaker Novo Nordisk, Lars Fruergaard Jorgensen, will participate in the meeting, the company said on Thursday.In the first nine months of 2024, Novo’s U.S. sales totalled 115 billion Danish crowns ($15.86 billion), of which obesity drug Wegovy accounted for 31.1 billion.Alexander Lacik, CEO of jewellery maker Pandora (OTC:PANDY) and Niels Christiansen, the CEO of toymaker Lego will also participate, the two companies said, respectively. Carlsberg (CSE:CARLb) said that its CEO, Jacob Aarup-Andersen, would also join.The CEOs of wind turbine maker Vestas and Orsted (CSE:ORSTED), the world’s biggest offshore wind farm developer, were also attending, the two companies said.Shipping group Maersk said its executives would not participate as they were travelling.”It’s important that we have a good and constructive dialogue with the Danish business community. In a time of geopolitical tensions, we must seek dialogue and cooperation,” Minister for Trade and Industry Morten Bodskov said in a statement.The ministry declined to give any detail on the time for the meeting or who was invited.Following Frederiksen’s conversation with Trump, foreign minister Lars Lokke Rasmussen also called members of the foreign policy committee to a meeting on Thursday.($1 = 7.2515 Danish crowns) More

NEW YORK/LONDON (Reuters) – When Bill Clinton began his first term as president in 1993, he faced a challenge to his authority from an unexpected adversary: bond traders. Low taxes and high defense spending over the prior decade had contributed to U.S. debt doubling as a share of economic output.Clinton and his advisers worried that ‘bond vigilantes’ – so called because they punish governments’ profligacy – would target the new Democratic administration. A run on U.S. Treasury bonds, they feared, could sharply raise borrowing costs, hurting growth and jeopardizing financial stability. A frustrated Clinton was forced to make the unpopular decision to raise taxes and cut spending to balance the budget.”He went away pretty disgusted with the idea that here he had just won an election by a pretty nice margin in a difficult three-way race, and now he was subservient to a bunch of bond traders,” said Alan Blinder, one of Clinton’s closest economic counselors who later served as the vice chair of the Federal Reserve. “A lot of us are wondering if the bond market vigilantes are going to come back for a second chapter.”As Donald Trump takes office on January 20, concerns over bond vigilantes in the United States have resurfaced, according to several market experts. And this time, the economic indicators are even more alarming, they said.The U.S. debt-to-GDP ratio is pushing 100%, double the level in Clinton’s time. Left unchecked, by 2027 it’s projected to exceed the records set after World War II, when the government borrowed heavily to fund the war effort.Bond yields, which move inversely to prices, have been climbing. The yield on 10-year U.S. Treasury bonds has risen more than a percentage point from a September low, a whopping increase for a measure where even hundredths of a percent matter.Like Clinton before him, Trump now faces the prospect of bond vigilantes becoming a potent check on his policy agenda, according to several former U.S. and foreign policymakers who faced market turmoil while in office.Reuters interviewed nearly two dozen policymakers, economists and investors – including Trump advisers, a former Italian prime minister and former Greek and British finance ministers – and examined bouts of bond market routs around the world since the 1980s to assess the risk of turbulence after Trump takes office. The review found several indicators watched by bond traders are flashing red. U.S. federal debt has increased to more than $28 trillion, from less than $20 trillion when Trump took office in 2017. Debt is also piling up in other countries, with the world’s total public debt expected to cross $100 trillion for the first time in 2024, leaving investors nervous.”There’s a risk of the bond vigilantes stepping up,” said Matt Eagan, portfolio manager at Loomis (LON:0JYZ) Sayles, a fund manager with $389 billion under management. “The unanswerable question is when that would occur.”The experts believe Trump has some cover, thanks to the dollar’s status as the global reserve currency and the Fed’s now well-established ability to intervene in markets in moments of crises, which means there are always buyers of U.S. debt.Other nations may be at more imminent risk, partly because of worries that Trump’s trade policies would dampen their growth, the experts said. Some of Europe’s biggest economies, including Britain and France, have come under pressure in bond markets recently. The Reuters analysis of past crises showed it’s hard to predict what will spark a bond market selloff. Part of the problem is market signals are open to interpretation. But once panic sets in, conditions can quickly spiral out of control, often requiring sizable intervention to re-establish stability.Robert Rubin, Clinton’s Treasury Secretary and a former co-chairman of Goldman Sachs, said the bond market “could very quickly make it very difficult” for Trump to do what he wants if a steep rise in interest rates triggered a recession or financial crisis. “Unsound conditions can continue for a long time until they correct, rapidly and savagely. When the tipping point might come, I have no idea,” he said.Trump has said he wants to lower taxes and stimulate economic growth, but many of the policymakers, economists and investors who spoke to Reuters viewed with skepticism his promises for draconian cuts to government spending and pay for his plan with trade tariffs.Combined with worries that Trump might weaken U.S. institutions like the Fed, these people said, the Republican’s policies could provoke a violent market reaction that would force him to reverse course. Stephen Moore, a longtime Trump economic adviser, singled out the risk of “massive tariffs” that could harm global growth as one possible trigger.Anna Kelly, a spokesperson for Trump’s transition team, said in a statement: “The American people re-elected President Trump by a resounding margin, giving him a mandate to implement the promises he made on the campaign trail, and he will deliver by ushering in a new Golden Age of American Success on day one.”She did not answer specific questions about current bond market conditions and the risk of a flare-up from Trump’s plans.     BETTING ON TAX CUTSEconomist Ed Yardeni, who coined the term bond vigilantes, said Trump had bought some time by promising to cut spending and naming market-savvy people to his team such as his Treasury Secretary pick, Scott Bessent, a long-time hedge fund manager familiar with debt markets. Such people could play the same role that Rubin did for Clinton, Yardeni said, “in making him realize that whatever he does, it’s got to come out as relatively fiscally conservative on balance.”Bessent said in June he’d urge Trump to slash the federal deficit to 3% of economic output by the end of his term, from 6.4% last year. In prepared testimony for his confirmation hearing in Congress on Thursday, he praised Trump’s 2017 tax cuts and his tariff plans, and said Washington must ensure the dollar remained the world’s reserve currency. He didn’t respond to requests for comment on the bond market.However, another long-time economic adviser to Trump, the economist Arthur Laffer, said the budget deficit is not the right focus. His Laffer Curve theory, dating back to the 1970s, posits that tax cuts can actually lead to higher tax revenues by stimulating economic activity.Laffer said the recent rise in bond yields was a positive sign for the new administration: it reflected bets that Trump’s policies would boost growth. “They’re going to borrow the funds they need to borrow to increase the productivity of goods and services in the U.S. economy and encourage work, effort and productivity, and participation rates,” Laffer said. “That’s what we did under Reagan, and that’s what Trump [will do] right now.”Laffer was an economic adviser to former President Ronald Reagan, whose tax cuts and higher spending in the 1980s caused deficits to balloon – policies that Clinton had to reverse.Bill Gross, a prominent bond investor who was in the vigilante posse that faced down Clinton, dismissed Laffer’s prediction that growth would resolve the substantial U.S. deficit.”Didn’t happen. Won’t happen now,” Gross said in an email. “ATMOSPHERE OF CHAOS”Reuters’ review of bond vigilantism since the 1980s showed that once markets stop having confidence in policy, politicians can quickly lose control.Alarm (NASDAQ:ALRM) over unfunded tax cuts in the UK budget – meant to spur economic growth – roiled Britain’s debt markets in the fall of 2022. Gilts suffered their biggest one-day rout in decades and the pound sank to record lows, forcing the Bank of England to intervene.”My main recollection was the atmosphere of chaos,” said then-finance minister Kwasi Kwarteng, who was fired by his boss, prime minister Liz Truss, after only 38 days in his job.”The market essentially forced the prime minister to remove me, and also as a consequence of that, I mean she just couldn’t hold the line, and she resigned literally six days later,” Kwarteng said.Truss, the shortest serving prime minister in British history, did not respond to an interview request. She has defended her budget, saying she tried to implement the right policies. Traders’ decisions to buy or sell debt reflect a range of factors such as what they think of a country’s growth prospects, inflation trajectory and the supply and demand for bonds. Some metrics are now suggesting that lending money over a longer period is getting riskier, prompting investors to charge more interest on bonds.One such metric is how a country’s borrowing costs compare to its growth potential. If they are higher than growth in the long term, the debt-to-GDP ratio would increase even without new borrowing, meaning it risks becoming unsustainable over time.The Fed sees long-term U.S. real growth at 1.8%, which translates to 3.8% in nominal terms once the central bank’s inflation target of 2% is taken into account. The U.S. 10-year bond yields are already higher, at around 4.7% currently. If that continues, it would suggest the current growth trajectory will not be enough to sustain the debt levels.The story is similar in Europe. For example, Britain’s budget watchdog estimates real growth averaging 1.75% in the long term, which including a 2% inflation target would lag the 10-year gilt yield of around 4.7%. US POLICY, GLOBAL IMPACTMuch rides on how bond markets respond to the Trump administration. A surge in interest rates in the United States – the world’s biggest economy and the lynchpin of the global financial system – would send shockwaves globally.Sovereign debt markets are already jittery. In recent days, the UK has come under pressure from bond traders who at one point pushed the yield on 30-year British government bonds to a 26-year high. The additional yield France pays for 10-year debt over Germany rose in November to the highest since 2012 when Europe was engulfed in a sovereign debt crisis.Higher borrowing costs for governments trickle down to consumers and companies, curtailing economic growth, increasing debt defaults and leading to sell offs in stock markets.Regaining the confidence of bond markets can require painful steps that hit Main Street – such the series of austerity measures that Greece had to implement, starting in 2010, to stem the European sovereign debt crisis.Mario Monti, an economist who was tapped in 2011 as prime minister to rescue Italy from financial implosion, said a major difference now is that the largest European economies are under pressure, whereas in the past it was the smaller ones.Monti said the leadership of the United States, under then-President Barack Obama, was vital to help contain the euro zone crisis.In May 2012, Obama held a two-hour meeting with Monti, and his German and French counterparts at Camp David, in Maryland, during a G8 gathering. “Curiosity and pressure from Obama was extremely helpful,” Monti said. TRIGGER POINTSEconomists disagree over to what extent higher U.S. bond yields are currently being driven by factors like growth and inflation expectations, versus the demand and supply of new bonds, or the sustainability of government debt.Moore, the Trump adviser, attributed the rise in yields to investors getting nervous about inflation creeping up. He blamed that on the Fed’s move to cut rates at the end of last year: he said that had sent a message to the market that the central bank was not serious about bringing inflation down to its 2% target.Fed officials have repeatedly said they want to hit that objective.Moore said that some investors’ worries about government spending were weighing on yields, too, and that it was unclear how effective the Elon Musk-led Department of Government Efficiency would be. “There’s some concern about whether Republicans are serious about cutting spending,” Moore said.Musk has acknowledged that his goal of cutting $2 trillion in spending from the $6.2 trillion federal budget is a long shot. Bond markets are waiting to see the impact of Trump’s spending cuts and tax reductions, and disappointments could trigger the vigilantes, several experts said. Persistent wrangling over the U.S. debt ceiling, further downgrades to the U.S. credit rating or a fall in foreign demand for U.S. Treasuries due to reasons like sanctions and wars could make matters worse.”There are many possible sparks,” said Ray Dalio, the founder of macro hedge fund firm Bridgewater Associates, in an email. More